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Many of last year's best-performing emerging markets have continued their stellar performance in 2013. Mexico is a notable exception.

Last year, the Mexican Stock Exchange IPC index rose 18%, beating the MSCI Emerging Markets index's 14% gain. This year, however, the IPC index has dropped 4.6%, lagging behind the MSCI EM's 0.6% rise. And Mexico's struggles continued last week, as the IPC dropped nearly 2%, despite having its credit rating lifted to triple-B-plus by Fitch Ratings on Wednesday.

Mexico's struggles are all the more surprising considering that U.S. stocks are hitting record highs, with the Standard & Poor's 500 index up 14% this year. In the past, Mexico would have followed its lead. Over the past 10 years, Mexico has finished up every year the S&P 500 was in the black, and dropped when the S&P 500 has fallen.

What's got Mexico down? It doesn't help that the country began the year looking pricey, compared with its historic valuation and other stock markets. By the end of January, the IPC index was trading at 17 times the prior 12 months of earnings, versus its five-year average of 14.7 times, and 14.5 times for the S&P 500. "The Mexican stock market should be flying high," says Rodolfo Martell, portfolio manager of the BlackRock Emerging Markets Long/Short Equity fund. "Part of the reason you're not seeing that is because it was already expensive."

Its stock market is also getting hit by Mexican President Enrique Peña Nieto's attempts to reform the economy. He has teamed up with opposition parties on a reform platform known as the Pact for Mexico, which sets out the mutual steps that will be taken to open up communication and energy sectors to competition, update the tax code, and spur economic growth. And unlike past efforts, these have a good chance of succeeding, despite a recent vote-buying scandal that has hit Nieto's Institutional Revolutionary Party.

MORE OFTEN THAN NOT, efforts to open economies lift stock markets. In this case, however, the earliest reforms have targeted some of the country's biggest companies and caused their shares to fall. Carlos Slim's America Movil (ticker: AMXL.Mexico) has dropped 14% so far this year, as the government pushed telecom and media reform; Grupo Televisa (TLEVISACPO.Mexico) dropped 6.8%. They make up 18% and 6.6% of the IPC index, respectively. Efforts to institute a value-added tax, meanwhile, could cause consumers to spend less and hit the bottom line of Mexico's defensive stocks.

"The reforms will be better for Mexico's fiscal accounts," says Luis Carrillo, portfolio manager of the JPMorgan Latin America fund. "But in the short term, they will hit consumer names."

The market has started to reflect some of the potential impact. Mexico's stocks appear a lot cheaper, if not exactly cheap. The IPC index now trades at 15.3 times trailing earnings, below the S&P 500's 16. And even some of the most affected stocks look cheap enough to warrant a look.

Morgan Stanley's Michel Morin upgraded Grupo Televisa to Overweight from Equal Weight on May 8. With its shares off 8.9% since their Feb. 1 peak, a lot of the concerns are now priced in. But Morin is also expecting the company's earnings to surprise investors in the quarters ahead, after disappointing in April. "Earnings will be the catalyst," he says.